Gatti’s Pizza, Gigi’s Cupcakes file for bankruptcy protection

The owner of Gatti’s Pizza and Gigi’s Cupcakes filed for bankruptcy protection late last week, citing a heavy debt load and legal liabilities that led to too many financial losses.

The casual-dining pizza chain and cupcake concept are owned by Sovrano LLC, which filed for Chapter 11 debt protection in federal bankruptcy court in Dallas on Friday. The company has more than $32 million in secured debt through several loans, according to a filing—which says it has closed “several” locations recently.

Gatti’s Pizza dates to 1969, when James Eure opened Mr. Gatti’s Pizza in Austin, Texas, which ultimately evolved into a buffet concept.

Sovrano acquired the chain from Blue Sage Capital in 2015. The company operates three restaurants, and franchisees operate another 73.

Gigi’s was founded in 2008 and acquired by a Sovrano affiliate in 2016, when the chain had 92 locations.

A court filing said that the companies “failed to maximize revenues due in part to underperforming stores at several locations.” It said that the company did not close unprofitable stores and instead operated those locations at a loss.

The filing also cited “litigation and other legacy liabilities inherited from the Gigi’s acquisition” that hurt the company’s revenues.

Sovrano failed to get new financing for its business, resulting in a “liquidity crisis” that forced the company to file for bankruptcy protection.

The company said it has recently closed “several” unprofitable stores and expects to turn around operations, restructure finances and emerge from Chapter 11 “quickly.”

KeyCorp acquired Gigi’s for $6 million in 2016, when the chain operated 92 stores. KeyCorp quickly sued the sellers, including Gigi’s Holdings LLC, in federal court in Dallas, citing “misrepresentations” in the sale process. The lawsuit was later terminated.

The filing joins a string of restaurant bankruptcy filings in recent months. Aggressive lending, coupled with weak industry sales and rising costs for labor and rent, have led to several industry filings over the past year.